The Mexican company Empresas La Moderna (ELM) has entered the world seed and fresh produce market at unprecedented speed. Starting from scratch, the company has become one of the world’ s five largest seed companies, and the world’ s leading vegetable seed company in just 3 years. Through a series of well coordinated acquisitions and strategic alliances, ELM became an integrated fresh produce and seed company with access to major markets, genetic materials, breeding programmes and advanced biotechnology.

ELM’ s strategy for becoming a global vegetable seed producer has to be seen against the background of trends in the world seed market. In recent years stagnation in demand, increasing international competition, higher R&D costs and shorter product life cycles for new varieties have put pressure on seed prices and reduced profit margins. To maintain or even increase profits seed companies had to shift away from a traditional product and technical orientation towards a market oriented strategy.

Reassessment of target variables
In the light of the changes in the global seed market, competitive seed companies have to reassess the following target variables:
The market-segment scope. Seed companies have to decide for the crops, the market needs and seed qualities they are aiming at. Each market has its specific quality segments and seed companies have to make sure their products meet the respective demands. For instance, tomato varieties have to be chosen according to the specific market segments a company is aiming at, such as fresh produce, tomato soup or paste. For these specific segments, a company has to get hold of the required crop varieties and germplasm. To provide these varieties, traditional plant breeding is applied, but increasingly, modern biotechnology is becoming an additional tool used for the improvement of seeds.
A seed company that is engaged in the production of different seeds therefore needs to have access at the same time to traditional breeding, a broad germplasm base and modern biotechnologies.
The geographical scope. Seed companies have to take into consideration the location and size of their markets because seed varieties are restricted by specific climatic ranges. Expansion to new regions by introducing new varieties is costly and risky, not only because new varieties have to compete with existing ones but also because new distribution systems have to be developed.
The degree of vertical integration. Seed companies may be devoted to a single specialist area or may integrate several areas of activities such as basic research, biotechnology, breeding, propagation, distribution and marketing. This approach towards vertical integration along the production chain could provide competitive advantages because it allows companies quality control for the whole production process while tailoring the product to specific market demands.
In the 1990s, the marketing of the first genetically engineered crops has played an important role in the strategy of the seed industry. These genetically modified crops are expected to develop a new segment in the market, that will complement the classically bred ones. The main characteristics of these new varieties include resistance to herbicides and pests as well as added value for further processing. Additionally, intellectual property rights (IPRs) will become an increasingly important restructuring factor in the seed industry. For example, according to Suri Sehgal of Plant Genetic Systems (Belgium), the development of a new (transgenic) variety will depend on a large number of private technologies. Securing access to these new technologies, while using their own technologies as trading chips, could become decisive for the future viability of a seed company (see also Monitor No. 29).

Changing activities
ELM’ s strategy in the world seed market incorporates these new dynamics in the world seed industry. By a series of strategic acquisitions of and alliances with seed companies, biotechnology firms and fresh produce enterprises (see box 1), ELM has firmly established itself as a vertically integrated, global giant in vegetable seeds, vegetable production and distribution.
ELM is part of Pulsar International, a Mexican corporation involved in insurance, financial services and construction, with an annual sales volume of US$ 2.0 billion. In 1985 Pulsar bought Cigarrera La Moderna (CLM), Mexico’ s largest cigarette manufacturer, which became ELM’ s most profitable subsidiary. Between 1994 and 1995, however, ELM changed its main activity from cigarette manufacturing towards vegetable seeds and fresh produce. CLM’ s cigarette sales decreased from US$ 726 million in 1994 to US$ 674 million in 1995, while seeds sales grew in the same year from zero to US$ 374 million (see box 2). The decision to disengage from the cigarette business was also effected by ELM’ s difficulties to compete with Cigatam, the second largest Mexican producer, which was taken over by the world’ s leading cigarette manufacturer Philip Morris (USA).
ELM’ s increasing seed sales were mainly based on the turnover of acquired subsidiaries. This brought ELM into a leading position in the world vegetable seed market with a share of 22 per cent in 1996. Furthermore, between 1994 and 1996, ELM was able to increase fresh produce sales from US$ 23 million to more than US$ 200 million. This transition was completed in 1997 when ELM resold its CLM shares to British American Tobacco Industries for approximately US$ 1.7 billion.

ELM’ s agrobiotechnology division  ELM’ s acquisitions and strategic alliances  1994  ELM acquires the seed company Asgrow-Bruinsma (USA);  1995  ELM acquires the seed company Petoseed-Royal Sluis (USA); Establishment of Seminis merger        of Asgrow-Bruinsma   and Petoseed-Royal Sluis;  1996 ELM acquires 70 per cent of the biotechnology and fresh produce company DNA Plant Technology; merger of DNAP   and ELM’ s Bionova into DNAP Holding Corp;  1996 ELM acquires 51 per cent of the fresh produce distributor Royal Van Namen  1996 ELM sells Asgrow Agronomics to Monsanto and signs a technological collaboration agreement with Monsanto;  1997 ELM sells its cigarette manufacturer Cigarrera La Moderna (CLM) to British American Tobacco Industries.  Source: Mexican newspapers and magazines

Access to breeding programmes
Between 1994 and 1995, ELM invested US$ 480 million mostly on the acquisitions of two important US seed firms Asgrow Seed and Petoseed. Together with their respective Dutch subsidiaries Bruinsma and Royal Sluis they were merged in 1995 to create Seminis, ELM’ s new seed division. ELM profited not only from Asgrow’ s and Petoseed’ s long tradition in conventional breeding, but the merger also provided access to genetic material. Moreover, since these companies were engaged in different segments of the vegetable seed market, mutual competition could be avoided. At present, Seminis owns 36 breeding stations worldwide as well as the world’ s largest vegetable gene bank. Seminis concentrates its plant breeding and R&D activities mainly in the USA. Research decisions are centralized in its headquarters in Woodland, California, USA. Its vegetable seeds are marketed under different brands in more than 110 countries (see box 2). Since the four merged companies were already established in the vegetable seed market, ELM decided to continue with Asgrow, Bruinsma, Petoseed and Royal Sluis as brand names.

Asgrow’ s major vegetable seed products are peas, beans, sweet maize, cucumber, tomatoes, carrots, lettuces, onions and cantaloupes. The company is active in both conventional breeding and genetic engineering. It holds several patents on transgenic and non-transgenic vegetables. In 1995, for example, it obtained clearance under US regulations to release a transgenic squash variety resistant to watermelon mosaic virus 2 (WMM2) and zuchini yellow mosaic virus. In 1997, Asgrow announced that it will add resistance to papaya ringspot virus. Other patents include long shelf life for broccoli and tomatoes, as well as hybrid broccoli for both fresh and processing markets.
Asgrow has a collaboration agreement with the Dutch biotechnology company Mogen, now a subsidiary of Zeneca (UK), on nematode resistant varieties of specific horticultural crops. Furthermore, Asgrow has established service facility stations in the USA and is engaged in seed coating. Asgrow’ s subsidiary Bruinsma is now Seminis’  specialist in vegetables produced in green houses, such as cucumber and tomato.
Petoseed was acquired by ELM in 1995. This productive company has already marketed 25 new varieties since 1994, mainly cucumber, melon and tomato varieties. The company is active in both conventional breeding and genetic engineering. In 1995, for example, it introduced a genetically modified tomato for food processing, which was developed together with Zeneca Plant Science (UK). In this cooperation, Zeneca Plant Science provided the gene technology. For 1998, Petoseed announced the commercialization of hybrid cauliflower varieties, developed by using a cytoplasmic male sterility (CMS) method. CMS is an effective method to produce hybrids by employing plants with sterile pollen. Like Asgrow, Petoseed is also engaged in seed coating. Finally, Seminis owns 100 per cent of the Netherlands’  seed company Royal Sluis. This corporation is specialized in cabbage, cauliflower, lettuce and spinach.

ELM' s agrobiotechnology division
Subsidiaries	Sales 1995*    (million US$)	Brand	Main technologies	Main products	Primary markets
ELM DNAP Holding
DNA Plant Technology (DNAP)	20**	Fresh World Farms	*Plant     Regeneration   *Transwitch   Patent   *Genetic    Engineering	cherry tomato, tomato, snap pea, pepper, banana, pineapple, strawberry	North America, Europe, Asia, Middle and Far East
Bionova Subsidiaries	178	Premier Selection, Master’ s Touch		fresh produce and distribution of vegetables and fruits	North America, Europe, Middle and Far East
subtotal fresh produce and biotechnology	198
ELM Seminis
Asgrow-Bruinsma	122	Asgrow	*Germplasm   Development  *Genetic   Engineering  *Molecular   Markers  *Cell Biology	tomato, carrot, onion, pepper, bean, pea, corn, melon, cucumber, brassica	worldwide
	11	Bruinsma		greenhouse tomato, pepper, cucumber	Europe
Petoseed	141	Petoseed		tomato, pepper, eggplant, brassica, onion, melon, cucumber	worldwide
	95	Royal Sluis		brassica, bean, tomato, lettuce	Europe, Asia
Others	5	Genecorp		lettuce	North America
subtotal seeds	374
Total sales ELM agro-  biotechnology division	572
* including sales of acquired new subsidiaries   ** including fresh produce sales, product development and incomes from investment and R&D contracts

 
Access to biotechnology
To widen its access to new biotechnologies, in 1996 ELM took over the US company DNA Plant Technology (DNAP), the world’ s fourth largest enterprise in agricultural biotechnology. DNAP’ s IPR portfolio comprises more than 40 US patents in biotechnology. DNAP has developed new vegetable varieties through genetic engineering. The company holds several patents in the field of transformation/regeneration technology to regenerate whole plants out of genetically engineered plant cells. Other patents include gene identification techniques which allow association of genes with specific plant characteristics without the need to understand intermediary biological processes. In addition, DNAP’ s patents cover vector systems for gene transfer, an engineered plant selection technology and a gene expression technology. However, DNAP’ s most valuable technology is the so-called Transwitch. With this technology the expression of specific genes can be suppressed, for example the genes that trigger ripening. DNAP holds several US patents on this procedure and has used it to develop tomato varieties with prolonged shelf life. The importance of this technology is illustrated by the fact that ELM took DNAP’ s Transwitch patents as a guarantee for its 10 year US$ 30 million loan to DNAP. ELM negotiated to own any new product developed through this technology.

Vertical integration
Although DNAP should provide ELM with cutting edge biotechnology, the company has not been integrated into Seminis, ELM’ s seed division. Instead, it was merged with ELM’ s fresh produce subsidiary Bionova. The main reason for this is DNAP’ s distribution of fresh vegetables in the USA under the brand name Fresh World Farms. DNAP fresh produce distribution is mainly concentrated in the northeastern states and thus complements the distribution network of the Bionova subsidiaries which are mainly active in western and southern parts of the USA. To further extend ELM’ s fresh produce activities outside the USA, Canada, Mexico and South America, 51 per cent of the  Dutch fresh produce distributor Royal Van Namen was acquired in 1996. This acquisition provided ELM with access to the fresh produce markets in Europe, the Middle East and Asia.
By this strategic mix of acquisitions, ELM has created a vertically integrated vegetable company controlling both its most strategic input, the seed, and its distribution channels on a global scale. Its vertical integration strategy includes production of vegetable by contract farming, using ELM’ s seeds on leased or farmer-owned lands. However, one link is still missing, namely the combination of DNAP’ s biotechnological expertise and Seminis’  vegetable germplasm bank.

Technological collaboration with Monsanto
On its search for strategic alliances, ELM embarked on several cooperations with the US biotechnology company Monsanto in 1997. In the past, these two companies had a legal quarrel about DNAP’ s Transwitch patent. A settlement was reached in 1995 which forbade DNAP to commercialize its transgenic Endless Summer Tomato. The agreement between ELM and Monsanto reflects a division of market shares. Monsanto’ s interests in vegetables is limited to tomatoes. This is confirmed by Monsanto’ s acquisition of Calgene (USA), the first company to commercialize a transgenic, long shelf-life tomato. Although the competition between Monsanto and ELM in the tomato market continues, ELM withdrew from the transgenic, long shelf-life tomato market. The details of this settlement remain undisclosed. However, it seemed to have had an intensifying effect on the relationship between the two companies: For instance, in 1996, ELM sold Asgrow Seeds’  agronomic division, mainly active in hybrid maize, hybrid sorghum and soya beans, for US$ 240 million to Monsanto. In 1997, the two companies signed a technological collaboration agreement which gives ELM access to Monsanto’ s herbicide resistance technology. It allows the introduction of resistance against Monsanto’ s glyphosate based herbicide Roundup in ELM’ s vegetable varieties. Other technologies interesting for ELM are Monsanto’ s technology to use coat-protein mediated virus-protection and Bacillus thuringiensis (Bt) for the control of lepidopteran insects such as carterpillars. ELM’ s access to Monsanto technologies will strengthen ELM’ s position in vegetables other than tomatoes, thereby not competing with Monsanto.
In November 1997, Monsanto and ELM announced the joint acquisition of a 20 per cent stake in Mendel Biotechnology (USA) for US$ 30 million. Mendel Biotechnology is a private gene-research company that will enable the two agrobiology-companies to identify genes for the development of specific traits, such as disease resistance in crops.

Global from the start
ELM’ s decision to enter the vegetable seed market on a global level was not only due to the developments in the international seed market. It was also promoted by unfavourable circumstances in Mexico. Firstly, the supply of germplasm and technology from Mexican biotechnology research institutes is very limited. Mexican plant biotechnology research is dominated by public institutions with restricted budgets and a scarce output of commercial varieties. During the last five years, only four Mexican institutions, i.e. Centro de Investigación y Estudios Avanzados (CINVESTAV), Universidad Nacional Autónoma de México (UNAM), Instituto Nacional de Investigaciones Forestales y Agropecuarias (INIFAP) and the Universidad de Puebla, have been working on the development of new plant varieties, employing genetic engineering as well as conventional breeding methods. Yet none of these varieties has reached any commercial application.
Secondly, the domestic seed market was already saturated by suppliers from the USA, amongst which were Asgrow and Petoseed. Mexico is the major market for US seed exports, which are likely to increase under the new conditions set by the North American Free Trade Agreement (NAFTA).
Yolanda Massieu

Metropolitan Autonomous University-Azcapotzalco, Department of Sociology, Av. San Pablo 180, C.P. 02200, Mexico City, Mexico. Phone (+52) 5 724 4344; Fax (+52) 5 394-8093; E-mail ymt@hp9000a1.uam.mx

This article is the result of the scholarship programme of the Biotechnology and Development Monitor.

Sources
Annual and Quarterly Reports of DNAP, Bionova, Monsanto and Upjohn 1994 to 1996.

A.M.A. Heijbroek and E.M.L. de Schutter (1996), The World Seed Market: Developments and strategies. Rabobank study, Food & Agribusiness Research, Utrecht, the Netherlands.

Several issues of Seed&Crops Industry, 1994 to 1996.

Several issues of Biotech Reporter, Biotech Business News, 1994-1996

Personal communications with H. Pennings (Seminis Biotechnology Europe), M. Stowers (Seminis Marketing) and S. Sehgal (PGS).